There is an old economic saying that ‘when the US sneezes, the world catches a cold’. This is particularly true for Europe, with the two regions having many shared interests and trade deals on the go. Equally true is that events in the EU have a knock-on affect on US organizations. Even if your firm has no direct dealings with EU countries, there is a high chance that your suppliers or partners do, and anything that happens to them will likely have a knock-on effect on your business.
The European economy has been in the doldrums for years, and it seems that a new issue rears its head that organizations need to adapt their business strategies to deal with. This year could see a number of events take place that companies should be on the look out for.
UK’s EU referendum
The EU Referendum is now looking likely to take place some time in the summer, probably the 23rd of June, just after the Scottish Parliament elections. The chances of a so-called Brexit have greatly increased in recent months, with some polls now actually putting the leave camp ahead. As we saw in the Scottish referendum, the fear alone is likely to send the markets into a panic
A Brexit would be a challenge for the UK, with leaving causing massive economic disruption while it negotiates the terms of its departure and makes policy decisions that will make or break its future success outside the EU. The EU would similarly suffer, losing a sixth of its revenue, half its military, its second largest economy, its financial centre, and a vital proponent of free trade. Whether Britain remains an open and liberal economy will have tremendous implications for other companies and trade agreements, and companies should ensure that they have contingency plans in place.
One of the factors likely to have a major impact on the result of the referendum is whether Europe, and the UK, can stem the flow of migrants. Conflicts in Syria, Iraq and Afghanistan and economic migrants from the Balkans, the Middle East and Africa caused in excess of 2 million people to enter the EU illegally last year, with over a million applying for asylum. The scale of the challenge has caused many to question the Schengen agreement, which could dramatically impact the free movement of labor between countries. There is already growing anti-immigrant sentiment in countries like Germany, which have proved a popular destination, and how this manifests itself over the course of the year will likely have wide-ranging implications.
The IMF predict that Greece's economy will shrink by 1.3% in 2016 and that unemployment would remain high, at 27.1%. The situation is further complicated because Greece is the de facto gateway for thousands of desperate migrants fleeing war and poverty in the Middle East and Africa, putting further strain on the economy, but increasing incentives for Europe to support it financially. The Syriza government’s popularity is plummeting, and there is little signs of growth, and it is likely that the problems that existed last year will again cause major issues.
The Impact of Data Laws
At the end of 2015, European Union officials agreed to sweeping new digital-privacy regime that is far stricter than it is in the US, and 2016 will start to see this come into effect. The new EU-wide data-protection law replaces a patchwork of 28 national laws, and the stiff penalties for those that break the often ambiguously worded rules held within it - up to 4% of global revenues - has raised fears in Silicon Valley that the new law poses an existential threat to companies’ ability to practice Big Data.
The Transatlantic Trade and Investment Partnership (TTIP) has been rumbling around for a few years now. TTIP is a secretive new trade deal between the US and the EU that would see tariffs cut on imported goods between the two powers and standardized safety rules. The deal has been controversial on both sides of the atlantic, particularly because of a clause that would give corporations the right to sue governments - effectively putting them above national law.
There is also significant concern among activists that new regulatory rules would cause lower standards of consumer and environmental protection and safety at work, and a group of 170 European civil society organizations said in a statement that regulatory co-operation as envisaged in TTIP would result in ‘downward harmonisation’.
There has also been much debate around the economic implications. A study by the Centre for Economic Policy Research (CEPR) conducted on behalf of the European Commission has estimated the potential gains for the EU as up to $134bn a year, and $107bn for the US. These have, however, been labeled highly optimistic by economists.